Wall Street Demands Austerity, Buys Up Wealth Of Indonesia

By Maurice Williams, in the Militant
Vol. 62, no. 3. 26 January 1998

During the second week of January a parade of officials from
the Clinton administration and the International Monetary Fund
(IMF) marched into Indonesia to squeeze the regime into
implementing the IMF's "economic reforms." The imperialist
emissaries are pressing Jakarta and other governments in the
region to open their markets to foreign investors in order to
buy up industries and banks on the cheap, deepening imperialist
domination of the region. On January 14 President Suharto
formally agreed to the IMF's demands.

U.S. deputy treasury secretary Lawrence Summers and State
Department official Stanley Roth arrived in Jakarta January 12
and demanded that Indonesian president Suharto reduce fuel
subsidies, cancel 15 infrastructure projects, close down 16
insolvent banks, and repeal limits on foreign ownership of
property and financial institutions in exchange for the $43
billion loan arrangement the government made with the IMF last
October.

IMF deputy chief Stanley Fischer had already held three
hours of negotiations with Indonesian officials the day before,
and U.S. secretary of defense William Cohen met with Suharto
two days later. Cohen launched a 12-day tour to also visit
Thailand, Singapore, China, Japan, and south Korea, to stress
Washington's military power in the Pacific.

Adding to the pressure on Jakarta to bow to imperialist
dictates, President Suharto received phone calls on January 8
from U.S. president William Clinton, and on January 12 from
German chancellor Helmut Kohl, Japan's prime minister Ryutaro
Hashimoto, and Australian prime minister John Howard urging
Jakarta to impose the IMF austerity package. After the meeting
with Suharto, U.S. deputy treasury secretary Summers remarked,
"It is clear that President Suharto recognizes the need to take
the strong steps of the kind under discussion with the IMF to
create confidence."

Imperialist officials gave a "thumbs down" to Jakarta's
"wildly unrealistic" 1997-1998 budget and its failure to push
through sufficient austerity measures. The budget assumptions
were based on the country's currency trading at 4,000 rupiah to
the U.S. dollar, instead of its current exchange rate of some
8,000 rupiah to the dollar. Foreign investors are unwilling to
accept the government's plan to pay interest for some $52
billion in loans based on 4,000 rupiah to the U.S. dollar, even
though the budget projects a 57 percent increase in loan
payments.

The rupiah has fallen 72 percent from its value one year
ago, since a wave of currency devaluations that began last July
and spread throughout southeast Asia. The lower value of the
rupiah makes it impossible for most Indonesian companies to
repay massive loans from U.S., Japanese, and European banks.
Indonesia's total foreign debt is estimated at $133 billion,
with many companies and banks failing to make payments. This
includes the state-owned airline, Garuda, which missed two
payments on aircraft loans in December totaling $8 million. The
escalating debt burden had sparked rumors that the government
would declare a moratorium on debt repayments.

Meanwhile, this nation of 200 million people has been hit by
the worst drought in 50 years and famine conditions are
spreading across eastern provinces. Unemployment is expected to
rise by 50 percent, to at least 6.5 million workers.

Jakarta's budget included an increase in the country's
petroleum subsidy, which reflects its nervousness over
impending political and social instability. More than 60
percent of the rural population relies on kerosene for heat and
light.

In a signal of the potential of Indonesian toilers to
resist, 16,000 aerospace workers in Bandung went on strike last
October and held mass rallies protesting threatened layoffs.
"The government's primary concern is not the unhappiness of
IMF emissaries but the possibility of social unrest," declared
the editors of the Wall Street Journal January 9. "President
Suharto may now believe that his only course is to increase
spending on things like food and fuel subsidies to .. placate
the masses who might be tempted to take to the streets."

A news article in the same big-business daily said that
unnamed "analysts don't begrudge Indonesia for prioritizing
social and humanitarian concerns, but they criticize the
government for doing so without implementing structural
economic reforms" -that is the IMF conditions.

A layer of the U.S. capitalist rulers, however, have begun a
clamor for Suharto's resignation. "[Suharto] seems more of an
impediment to reform," declared the New York Times January 11.

Others within Indonesia's ruling circles are openly calling
for his ouster, including a section of the military. "It seems
the only solution now is for the president to step down," said
an unnamed senior armed forces officer. Suharto came to power
in 1965 following a coup and bloody repression in which more
than 500,000 workers were massacred.

Imperialists push to buy companies

As part of the IMF "reforms" imperialist bankers are
demanding Indonesian enterprises pay their debts or sell
assets. With their prices denominated in devalued currencies,
many companies in Asia have become cheap in dollar terms.
"We're looking at opportunities the likes of which we have
never seen before in any Asian country," remarked Patrick
Alexander, fund manager at Peregrine, the day before that Hong
Kong investment bank collapsed.

In December U.S. senator Robert Torricelli declared that
south Korea "is about to see a fire sale of some of its major
assets."

The Korean Press Agency reported that General Motors (GM) is
negotiating to purchase a stake in Daewoo Motors Co. "These
currencies now are at incredibly low levels," said John Smith,
chairman of GM, pointing to advantages for bosses looking to
cut costs. "If there's an opportunity that presents itself
because of the favorable cost position that some of these
countries and companies might be in, we may be more than
willing to take a look at it," he added.

The Ford Motor Co., GM, and two German enterprises, Robert
Bosch and Sachs A.G. are reportedly interested in buying Mando
Machinery, south Korea's largest manufacturer of auto parts.

Meanwhile, Indonesia's cheapened currency provoked the
collapse of Hong Kong's Peregrine Investments Holdings Ltd.,
which went belly up January 12. Peregrine was the largest
investment bank in Asia outside Japan and its collapse has
resonated throughout the business world, including the United
States.

Last summer Peregrine lent $260 million in U.S. dollars, a
third of its capital, to Steady Safe, an taxicab company in
Indonesia. When the value of the rupiah plummeted, Steady Safe
was unable to repay the loan and Peregrine's stock plunged to
about three cents per share.

Peregrine finally went under after it failed to clinch a
deal with an investor to replenish the company's capital. The
Zurich Group of Switzerland backed out of a deal to put up $200
million for a 24 percent stake in the company when one of
Peregrine's main bank creditors, First Chicago, declined to put
$25 million into the investment bank. Last June Peregrine
reported handsome profits for the first six months of $82.5
million on revenues of $19.6 billion.

Peregrine's bankruptcy signals a deepening financial crisis
in Hong Kong that could lead to ending its currency peg to the
U.S. dollar. With the value of some Asian currencies dropping
by 70 percent, business analysts assert that the Hong Kong
dollar is vastly overvalued. "The fall of the peg could lead to
a banking and property collapse in Hong Kong," said Ma Guonon,
head of economic research at Salomon Smith and Barney.

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